Regulation and Rates

12 Months Ended

Dec. 31, 2024

Note 14 — Regulation and Rates

Dolet Hills Regulatory Refund

Cleco Power is seeking recovery for stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other mine-related closure costs. These costs were subject to a prudency review by the LPSC. On February 2, 2024, the ALJ released a final recommendation indicating a partial disallowance of the recovery of fuel costs and a refund of related costs previously recovered from customers.

Management estimated that a loss resulting from a potential disallowance was probable, and as a result, an estimated contingent loss of $58.7 million was accrued in provision for rate refund as of December 31, 2023. Cleco Power recorded an additional loss of $1.3 million as of March 31, 2024, as a result of the approval of an uncontested settlement by the LPSC on April 19, 2024. The settlement contains a provision for refunding to Cleco Power’s retail customers $20.0 million per year during each of the third quarters of 2024, 2025, and 2026 for a total refund of $60.0 million. Cleco Power has issued refunds for the third quarter of 2024. For information about the settlement, see Note 16 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Review.”

FRP

Prior to July 1, 2024, Cleco Power’s annual retail earnings were subject to an FRP approved by the LPSC in June 2021. The prior FRP allowed Cleco Power to earn a target ROE of 9.5%, while providing the opportunity to earn up to 10.0%. Additionally, 60.0% of retail earnings between 10.0% and 10.5%, and all retail earnings over 10.5%, were required to be refunded to customers.

On June 19, 2024, the LPSC approved Cleco Power’s new retail rate plan. Effective July 1, 2024, under the terms of the new FRP, Cleco Power is allowed to earn a target ROE of 9.7%, while providing the opportunity to earn up to 10.3%. Additionally, 60% of retail earnings between 10.3% and 10.9%, and all retail earnings over 10.9%, are required to be refunded to customers. Cleco Power’s next base rate case is required to be filed with the LPSC on or before June 30, 2026. The amount of credits due to customers, if any, is determined by Cleco Power’s monitoring report, which is filed with the LPSC annually. Additionally, as approved in Cleco Power’s FRP, a residential revenue decoupling mechanism was implemented through its infrastructure and incremental cost recovery rider that provides a charge or credit to residential customers for any under or over collection of residential base revenue. For more information on the regulatory liability established for the revenue decoupling mechanism, see Note 6 — “Regulatory Assets and Liabilities — Residential Revenue Decoupling.”

On May 22, 2024, the LPSC approved Cleco Power’s monitoring report for the 12-month period ended June 30, 2023, indicating no material findings and no refund to Cleco Power’s retail customers. On October 31, 2024, Cleco Power filed its monitoring report for the 12-month period ending June 30, 2024, indicating no refund to Cleco Power’s retail customers. Cleco Power has received the LPSC Staff’s draft report indicating no refund and no material findings. Due to the nature of the regulatory process, management is not able to determine the timing of the approval of this report.

Other Deferred Costs

Cleco Power defers other costs that it believes are prudently incurred and probable of recovery from its retail customers. These costs are recorded in Other deferred charges on Cleco’s and Cleco Power’s Consolidated Balance Sheets. On June 19, 2024, the LPSC approved for Cleco Power to recover through its new rates, effective on July 1, 2024, costs associated with Cleco Power’s rate case, IRP, and storm preparation. As a result, $3.8 million was reclassified to Other regulatory assets on Cleco’s and Cleco Power’s Consolidated Balance Sheets. At December 31, 2024, Cleco Power had $4.0 million recorded for deferred costs it anticipates to recover from its customers, subject to approval by the LPSC.

TCJA

The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. Cleco Power’s retail customers are continuing to receive bill credits resulting from the TCJA. Beginning in July 2021, under Cleco Power’s prior retail rate plan, retail customers received approximately $2.5 million in monthly bill credits for the target retail portion of the unprotected excess ADIT. At June 30, 2024, all amounts for the unprotected excess ADIT had been returned to retail customers.

The retail portion of the protected excess ADIT will be credited until the full amount of the protected excess ADIT has been returned to Cleco Power’s customers through bill credits, which is estimated to be over 30 years. At December 31, 2024, Cleco Power had $189.6 million accrued for the excess ADIT, of which $6.8 million is reflected in current regulatory liabilities.

Teche Unit 3

In May 2023, Cleco Power filed an Attachment Y with MISO requesting retirement of Teche Unit 3, barring any violations of specific applicable reliability standards. In January 2024, Cleco Power filed a notice with the LPSC to retire Teche Unit 3, and on June 1, 2024, Teche Unit 3 was retired.

Wholesale Rates

Wholesale customers are charged market based rates that are subject to FERC’s triennial market power analysis. Cleco filed its most recent triennial power analysis in December 2023 and received FERC approval on December 13, 2024. The next triennial market power analysis is expected to be filed in December 2026.